I run a small private investment partnership, which invests globally with a macro theme. I would say the study of economics is best done in the tradition of the gentleman economists of the past, such as David Ricardo, Adam Smith and John Stuart Mill. Previously, I was an economist and macro strategist for a firm that served institutional investors. My book Gold: the Once and Future Money was released in 2007, and is now available in German, Chinese, Korean and Russian. My opinion pieces have appeared in the Financial Times, Asian Wall Street Journal, Dow Jones Newswires, Worth, Daily Yomiuri, Asia Times, Pravda, Huffington Post, and numerous other print and online publications. I also have a personal website at newworldeconomics.com.

The "Income Inequality" Debate Is Not About Income Inequality

As I see it, the problem of “income inequality” is not, for the most part, a problem of income inequality. When capitalism is working well, people do not particularly dislike the super-wealthy. If anything, they are celebrities and even heroes.

These people are super-rich. But, they also brought something valuable to society, in the form of software and computer hardware, media and entertainment, and even the joy of sports performance.

Rather, people tend to use these archaic, 19th-century terms of discussion in an attempt to identify a different problem today: the corruption of the ideals of capitalism.

Or, to put it more simply: crime pays.

Ideally, we could organize society along altruistic lines. This is the normal state of affairs in the nuclear family; sometimes, in the extended family as well, and among a few close friends. It is sometimes possible in small tribal bands of under 150 people, like some groups of Amish or Roma. However, anthropologists find that, as human groupings become larger and more complicated, other modes of organization become prominent.

The fact is that there simply isn’t a large enough portion of the human population that is motivated by altruistic notions. Most people are motivated by self-interest.

Even when there have been large groups of people organized in a broadly altruistic fashion, as was arguably the case for Native Americans, or perhaps the Tibetans, they tend to be conquered by others with less noble goals.

When all you have is sand, you build sand castles. This leads us to capitalism.

The moral core of capitalism lies in the way that it channels this rather amoral self-interest in ways that benefit society as a whole. In an alchemical process, amoral motivations lead to a moral result. To become wealthy, as these people have, they need to bring something of value to society – some good or service, sold at a profit. The profit margin indicates that the value of the finished product is greater than the value of the inputs required to create it; it prevents waste.

Along the way, for the business-builder to become successful, thousands of jobs can be created, thus also engaging the broader mass of people in prosperous activity. The process of competition leads to improving productivity, and a higher standard of living.

The “rising tide raises all boats,” as John F. Kennedy described, at a time when the U.S. middle class was steadily becoming wealthier via this process.

The capitalists’ reward, for all the risk and genius involved in producing some valuable good or service in the competitive capitalist economy, is a corporate profit margin typically around 6% — not a particularly large reward, you could argue. It is about the same as a real estate agent’s fee for selling a house.

Societies get into trouble when it becomes easier for people to achieve their goals of self-aggrandizement by means that do not make society wealthier and more prosperous, but rather make it poorer. In the past, this could take the crudest form of simple conquest and pillage – the strategy of Genghis Khan, or perhaps Napoleon Bonaparte. Obviously, nothing new is created in this process, and much is destroyed. Wealth simply changes hands, flowing from the less-powerful to the more-powerful, as total wealth shrinks.

The rich get richer and the poor get poorer.

I find that today’s concern over “income inequality” is motivated primarily by the recognition – correct, I believe – that many are becoming wealthy today in ways that do not benefit society as a whole, but rather impoverish it.

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